A Comparative Law Analysis of the Use of State-Level Green
Procurement in the European Union and the United States
William Henry Clune
Abstract
This paper undertakes a comparative law analysis of the use of state level procurement in the European Union and the United States to achieve state level environmental policy objectives. In both places, it is the tension between federal economic goals and state procurement objectives that continues to define the legal and operational contours of this field. As such, the questions to be examined relate to how federal laws compare under both systems in promoting or restricting state level environmental procurement practices. It is initially observed that the market participant exception to the dormant commerce clause gives U.S. states significant additional freedoms in their exercise of many procurement activities. How‐ ever, recent and expanding Union legislative and judicial doctrines appear to be levelling the field in some respects. And in particular, as states in both the Union and the U.S. are increasingly relying upon green public procurement to play important roles in driving ambitious environ‐ mental and economic policy strategies, there may be some convergence between the U.S. and European systems in granting greater levels of flexibility to state procurement practices that are part of more complex projects.
1.
Introduction
1The subject of this paper is a comparative law analysis of the use of state level procurement in
1 William Henry Clune is Assistant Director at the
Sustainable Earth Office and Senior Lecturer at the
Division of Economics in Nanyang Technological
University, Singapore.
the European Union ( the Union ) and the United States ( the U.S. ) to achieve state level ( local ) environmental policy objectives. And the questions to be examined relate to how federal laws compare under both systems in promoting or restricting state level environ‐ mental procurement practices.
In fact, it s possible to make some clear comparisons between the general ways in which the European and U.S. systems operate. Specifically, both federal systems secure economic and free market rights, and the states (either U.S. states or European member nation states) operate semi‐autonomously within their federations. Therefore, while state procurement activities are bound in both places to comply and not contradict with federal laws, it is precisely this tension between federal economic goals and state procurement objectives that continually defines the legal doctrines in this area.
It is with some irony, then, that it can be observed that U.S. states enjoy significant additional freedom in their exercise of many procurement activities as compared to Union member states even with their greater national sovereignty. One U.S. legal doctrine, the market participant exception to the dormant commerce clause, is primarily responsible for this divergence.
many kinds of procurement projects. Simulta‐
neously, Union legislative and judicial doctrines appear to grant greater levels of flexibility to state procurement practices that are part and parcel of more complex projects.
In fact, states in both the Union and the U.S. are increasingly relying upon public procurement to play an important role in driving ambitious environmental and economic policy strategies. Indeed, state procurement activities in both places are often part of legally and structurally complex undertakings with multiple objectives and complicated financing arrangements. And in these types of situations, there is some convergence between the U.S. and European systems as to how much freedom states have in their use of public procurement.
1.1. Defining State Procurement
State procurement goals may involve reducing environmental impacts from purchases, such as requiring public power generation utilities to purchase less polluting fuels. But green procurement is just as likely to involve incentivizing the growth of private green industries, such as linking public fuel purchases to specific renewable energy‐ producing sectors. And green procurement is equally about influencing the environmental behaviours of private market actors, such as mandating waste recycling and then building collection networks and facilities that permit or preference certain types of materials. Simply put, a state purchase of goods or services may, itself, be the environmental goal, but may, increasingly, be a means to other environ‐ mental goals.
In fact, the legal landscape in this area in both the Union and the U.S. has been driven in recent years by these types of combination procurement objectives involving a mix of private and public actors. As such, the legal and programmatic analysis in this paper will focus
on several important areas of state procurement policy: material usage (including state purchasing and incentivizing of local products), state level recycling programs (including state purchases of goods and services, and which represents local decisions about material re‐ usage), waste disposal (also involving state purchases of goods and services, and which concerns state policies regarding long‐term material non‐usage), and state energy policies (particularly state purchasing, incentivizing, and support of renewable energy supplies and infrastructure).
1.2 Scale and Potential of State Procurement
Since the impact of state procurement on environmental goals increases with the state s share of the economic market, some information on size and scale may be a good way to start thinking about programmatic potential. For the Union as a whole, public spending (at combined local, state, and federal levels) as a percentage of GDP is approximately 45%.2 In the United States, this same figure
(also at combined local, state, and federal levels) is approximately 40%.3 At these
aggregated levels, then, the relative sizes and potential markets appear comparable.4
Obviously, though, total expenditures don t isolate spending for procurement, and
2 See European Commission Economic Paper (2008); and see OECD Report (2003); and see Audet, D (2001). 3 See US Department of Commerce Report (2011); and see Audet, D (2001).
many government outlays need to be eliminated. But even when this is done, and all that remains is government spending for goods and services, many estimates still include government employee wage compensation; importantly, this expenditure should also be eliminated as it pertains to regular employees, whereas wages paid to service providers should be retained in procurement accounting.5
Looking to state level expenditures as a percentage of GDP for selected European member states, the first thing that becomes clear is how variable government spending for procurement (excluding government employee wages) is across nations: Hungary = 18%; Sweden = 15%; Austria = 12%; France = 9%; Germany = 7%; Belgium = 5%.6 In fact, these
figures show a variation of more than 300% between the highest and lowest procurement expenditures found in the Union. This may also indicate disparate potential impacts from environmental procurement projects.
Comparable figures for U.S. states are hard to find directly. However, some commentators have done studies estimating that as much as 50% of total state expenditures in the U.S. are used for the procurement of goods and services.7 Using this simplified estimate in
conjunction with detailed state‐level finance data from the U.S. census, may allow some reasonable comparisons to be made for selected U.S. states, including the three largest states by GDP (California, Texas, and New York) and one smaller GDP state by way of comparison (Alabama).8 Taking half, then, of overall state
expenditures compared to state GDP figures produces the following estimates: California =
5 See OECD Report (2000); OECD Report (2002); OECD Report (2003); and see Audet, D (2001).
6 See OECD Report (2000); and see Audet, D (2001). 7 See McCue, CP et al (2003).
8 See US Department of Commerce Report (2011).
11%; Texas = 8%; New York = 12%; and Alaba‐ ma = 10%.9
There seems to be less variation in expenditure levels between this small sample of U.S. states than was found in the Union. But overall, these levels appear comparable to those found in European member states, which suggests the potential impacts and benefits of environmental state procurement may also be comparable. On this point, again, the magni‐ tude of these numbers doesn t demonstrate overwhelming buying power in state economic markets.10 In fact, it has been claimed that the
further procurement purchasing gets from centralized (federal) or cooperative (inter‐state) action, the smaller the market shares become and the less effective it is for affecting policy goals.11
However, as already discussed, state purchasing may not only be an environmental end in itself, but may be part of much broader and inter‐connected environmental and incen‐ tive goals. Obviously, the aforementioned market impacts and potentials may be greatly leveraged in such cases. This leveraging effect may be necessary for markets where states have little buying power, and may, on the other hand, be optimal for exploiting significant environmental gains in markets where states do have more significant market shares. While the legal context of these types of projects is certainly more complicated and uncertain, they also hold the greatest potential for states wishing to affect large scale, positive environ‐ mental impacts.
9 Id.
10 But see European Commission Report (2004), which points out that in specific markets, state governments may be more influential purchasers.
1.3 Examples of State Environmental Pro‐
curement Projects
Guidance from The European Commission and U.S. federal government for purchasing and procurement projects promotes the environ‐ mental lifecycle criteria, but also strongly emphasizes the use of widely accepted methodologies and technical standards.12
Clearly, federal governments are protective of their internal markets, and may be seeking to avoid the types of legal confrontations and entanglements outlined in the sections below by employing more conservative approaches. So, for example, engineering and environ‐ mental standards that have already achieved consensus throughout the Union appear to be safe ground for inclusion as specifications in member state purchasing contracts.13
State and local environmental procurement programs, while having much in common with the federal programs, are also situated quite differently with respect to economic and legal constraints, and, perhaps, with respect to considerations about how to optimize impacts. While the following examples of state programs reflect the environmental and federal‐state balancing issues introduced in the preceding sections, they also describe the full range of common practices for environmental procure‐ ment projects involving complex and mixed strategies.
12 See US EPA Final Guidance (1999); and US EPA Guidelines (2011); and European Commission Report (2004).
13 See, for example, European Commission; Green Public Procurement Thermal Insulation Technical Background Report (2010) at page 2 ( The core criteria are those suitable for use by any contracting authority across the
Member States ). But note, even with technical
specifications the Union may require an or equivalent provision that can, itself, be defined by its acceptance by another member state. See Dundalk Water, 45/87.
San Joaquin: Buy Local, Buy Green
The Buy Local, Buy Green initiative in San Joaquin, California, is a collaborative marketing and procurement program undertaken by local businesses and the municipal government.14 In
contrast to the other examples in this section, this project isn t specific to any given category of goods or services, but is an attempt to get all regional private and public consumers to buy everything and anything from local producers and suppliers.
The fact that this program is legal in the U.S. will be an important point of departure from the situation in the Union, where it most certainly would not be allowed to stand.15 The
program s justifications are explicit and twofold: first, environmental benefits from reduced carbon emissions resulting from reduced transport driving distances; second, buying locally stimulates the local economy. Even this obviously discriminatory economic intent and impact is allowable, which will require some explanation later to square with the fact that distortionary burdening of inter‐ state free markets is also protected against in the United States.
Austria: Material Usage
Next, consider a relatively simple example from Austria of hospital supply purchasing. Following a 1993 law requiring green procurement by all government agencies, Austria implemented several successful programs regarding purchases of building materials, office equipment, and cleaning supplies. To support these programs, Austria
created an extensive catalogue of all products and supplies required to operate their agencies as a way of controlling purchasing and ranking the best environmental options.16 The Austrian
government also created its own eco‐label to more broadly communicate its environmental assessments and to influence other, primarily Austrian, suppliers and manufacturers.17
For instance, The Vienna Hospital Associa‐ tion examined its use of detergents and cleansers in the context of its ordinary and medical requirements. Through this process, it reduced 120 cleansing agents found in its products to less than 40, thereby reducing chemical pollution to municipal waste‐water.18
In addition, the hospitals phased out PVC‐ packaging materials, thereby reducing burdens on municipal waste disposal.19
California: Recycling
Turning to another U.S. example, consider a California procurement program called The State Agency Buy Recycled Campaign ( SABRC ) requiring state agencies to buy products with high recycled content.20 As
background, there are no federally mandated recycling programs, and most of the garbage collection, garbage disposal, and recycling also occurs at state and local levels, either owned publicly, or procured as services from private companies. Under the California program, a variety of purchasing goals are established that include, for example, reducing the purchase of white paper, reducing the purchase of any products made with virgin materials, increasing the percentage of recycled or used materials in products, and influencing state
16 See Ines, O (2001).
17 Id. 18 Id. 19 Id.
20 See California PCC, Sections 12153‐12156 (2009).
suppliers from the private sector to increase their use of recycled materials.21
For a state recyclable content procurement program to work well, however, there must be several other steps present in this process, including, at minimum, local collection and transportation. And, in fact, California public entities are involved in most of these other steps. For example, The California Beverage Container Recycling and Litter Reduction Act contains a deposit refund program in which a refundable tax is applied to all beverage containers to encourage their collection by operation of the fee redemption.22
And the process continues, because many recycling centres for materials like glass, aluminium, and paper in California are also publicly owned. With respect to paper, most of the actual recycling is done when it is sold to the pulp and paper industry, private undertakings, which then sell their new products (containing recycled content) back to consumers (including the state). The interesting point here is that the state of California s recyclable content procurement program is part of a larger state policy, in which the state exerts simultaneous influence as buyer, collector, and seller of recyclables.
Sweden: Biogas Infrastructure and Vehicles
Sweden has become actively involved over the last 15 years in projects related to biogas fuels and biogas vehicles. And, importantly, Swedish green procurement policies are driving components of these projects. In fact, taken together, these projects could reasonably be described as extensive and ambitious state efforts towards developing the technologies for producing biogas and biogas vehicles, and creating the critical demand and supply
21 Id.
necessary for the long‐term viability of the economic markets.23 And, at present, Sweden s
use of the biofuel it produces is among the highest in the world, using more than 50% of approximately 1.2 TWh of its biofuel energy production in 2006: with the largest portion of this domestic use (almost 25%) being used for vehicle fuelling.24
These biogas and biogas vehicle projects are being realized through many connected state and municipal activities, including and with participation and partnerships from the private sector. Funding, however, has been coming from Sweden in large amounts for many years: for example, according to the Swedish Energy Agency, during 2009 alone the government granted SEK 150 million (about $20 million) to promote and develop technology in the biogas sector; this money was distributed to a variety of public, private, and mixed groups involved in developing biofuel vehicles of every type, producing biogas, improving fuel production processes, and the like.25
And at the centre of these biogas investment projects is extensive state and municipal purchasing. In fact, as large as have been the research and development grants in this area, based upon the numbers outlined below Sweden has also spent a large amount of money in purchasing biogas vehicles, the biogas to run them, and all the related infrastructure and construction projects. Since 2009, all automobiles purchased by the Swedish
23 Actually, what s presented here is a sample of the activities and organizations involved, but research suggests that these only scratch the surface of the true numbers in Sweden of currently active participants, stakeholders, and project partners.
24 See Petersson, A (2009). And note: much of this fuel purchasing is done by the state, which, as shall be discussed, has acquired a significant fleet of biogas vehicles.
25 See Swedish Energy Agency Press Releases (2011).
government must be green cars.26 In 2008, The
City of Stockholm had 82 biogas buses and 60 biogas garbage trucks in operation.27 By 2002,
Linköping had replaced all of its diesel buses with biomethane buses, and had the world s first biogas train service.28
In 2003, it was estimated that there were more than 7000 biogas and natural gas vehicles being operated in Sweden, with the state and municipal sectors being responsible for a significant part of this purchasing.29 More
recent estimates suggest that these numbers have increased dramatically, with biogas vehicle purchases in 2007‐2008 alone estimated at nearly 13,000 new vehicles, and with a growing consumer (non‐state) share of the market.30
Sweden has also offered fiscal policy incentives over many years to households and consumers for the purchase of biogas vehicles. For example, through 2009 green car purchases, including biogas cars, were eligible for an SEK 10,000 government rebate, and many Swedish municipalities still offer free parking for green cars.31
An important point related to vehicles is that grants have been given for many years by the Swedish government to joint public‐private research and development consortiums to subsidize technological advancements and economic development for biogas cars and trucks. Typically, and for example, the grant applicant is a regional, pro‐business develop‐ ment body like Business Region Göteborg ( BRG ). However, the SEK 19,000,000 grant that BRG received last year from Sweden for its BiMe Truck program to develop viable
26 See Naturvardsverket Report (2009). 27 See SenterNovem Report (2009). 28 See IEA Bioenerg (2006).
29 See Jonsson, O et al (2003); and see Rydberg, T et al (2010).
30 Id.
economic markets for new biogas heavy duty trucks is being spent in working partnership with Volvo, a Swedish‐based private company that is also a world leader in developing biomethane diesel engines.32
The state s influence through green procurement also extends to both supplying inputs from and producing biofuels at its waste and sewage collection facilities. Among ongoing procurement projects are plant construction and upgrades to allow wastes to be transformed into biogas, and to increase plant capacities.33 For example, Stockholm
Vatten, the municipally‐owned water com‐ pany34 has been involved for many years with
treating sewage to produce biofuels: at the Hendriksdal treatment plant in Stockholm, anaerobic digestion of sewage produces upwards of 1,400 Nm3/h of biogas.35 And,
Stockholm Vatten s biofuel production is now tied to the city s procurement of green vehicles because the water company signed contracts with the City Council to supply the biogas required for the city s purchase of 120 new biogas buses.36
Of course, the private sector in Sweden has grown right along side the public sector in biogas production, including, for example SvenskBiogas AB and FordonsGas AB. And again, Swedish undertakings in this sector have benefited over the years from state funding. For
32 See Swedish Energy Agency Press Releases (2011); and see Business Region Göteborg (2011); and note: to be precise, Volvo has had a dominant Swedish presence during the last 15 years of state granting, even though it was also owned by Ford. Volvo was recently bought by Geely, a Chinese company.
33 See Balkenhoff, B et al (2010).
34 Stockholm Vatten is owned by Stockholm Stadshus AB (98%), which is itself owned by City of Stockholm,
and Huddinge municipality (2%); See Stockholms
Stadshus AB, Annual Report (2009). 35 See Hellström, D (2009).
36 See Balkenhoff, B et al (2010). And, on the city s side, of course, was a matching green procurement item, the purchase of biogas from Stockholm Vatten.
instance, AGA Gas AB, a private Swedish energy undertaking37, received SEK 17,300,000
from government grants in 2010 to improve the liquefaction process for biogas.
Additionally, from only a few biogas stations in Sweden just a few years ago, there are now over 100 biomethane re‐fuelling stations in the country.38 And, this is obviously
quite important to anyone s decision to buy biogas cars, since they would not be attractive products, or effective parts of an environmental procurement strategy, without convenient places to refuel. These days, Swedish and other regional private companies also play integral roles in this growing re‐fueling and fuel transport infrastructure; for example, AGA Gas AB transports biogas made at the Henriksdal facility to neighbourhood Shell service stations.39
And, no doubt, publicly subsidized pro‐ jects and grants have also facilitated the private sector s entry into and expertise with these infrastructure and service roles. For instance, the state‐subsidized BiMe Truck economic development program mentioned above also includes FordonsGas AB, a private company40
dominant in Sweden in biogas refuelling infrastructure.
The success of these Swedish biogas projects from an environmental and economic perspective looks real. As with the following example from the U.S., the legality of these Swedish programs, particularly their procure‐ ment aspects, will be discussed after the rele‐ vant legal frameworks are examined.
37 AGA is a wholly‐owned subsidiary of the DAX‐listed Linde Group; see The Linde Group, Annual Report (2009).
38 See Balkenhoff, B et al (2010). 39 See Held, J et al (2008) at page 68.
40 FordonsGas AB is also half‐owned by a private
Danish company, Dong Energy; see Dong Energy,
Arizona: Renewable Energy
Consider next a U.S. example from the energy sector, where a majority of states now have some form of Renewable Portfolio Standard ( RPS ) or Environmental Portfolio Standard ( EPS ) that requires a percentage of the state s electricity demand to be purchased from renewable sources. Often this threshold requirement is targeted to increase over time, and these mandates apply to a wide variety of private, public, and mixed producers, whole‐ salers, and distributers of energy.
In Arizona, for example, an EPS program requires that renewable energy (primarily solar and wind) supply 3% of in‐state electricity demand in 2011, set to rise to as much as 30% by 2025.41 Among those affected by the EPS
mandates, are both the Arizona Salt River Project, one of the largest publicly‐owned utilities in the U.S. that supplies Phoenix (Arizona s largest city) with power, and the Arizona Public Service Corporation, Arizona s largest private utility company. In addition, to offset the higher cost associated with using renewables to generate electricity, the Arizona Corporation Commission (the state utility agency that regulates the field) levies an EPS surcharge tax on all its in‐state and out‐of‐state residential and commercial customers.42
Alongside the EPS, however, Arizona has also launched in recent years a variety of multi‐ million dollar solar and wind energy incentive programs to benefit in‐state actors by offering generous tax credits, deductions, and exemptions: for the support and recruitment in Arizona of renewable energy manufacturing, supply, and support companies; for commercial installation of solar capacity; for residential installation of solar panels; for sales tax rebates
41 See Arizona AC R14‐2‐1801 et seq (2007). 42 Id.
for equipment purchases associated with wind power production, and so on.43
One initial observation, Arizona s EPS is legal.44 And this point will be set aside for now,
even if it looks like the state (as with Sweden s involvement in biogas) is using an inter‐ connected strategy of procurement, purchasing mandates, and taxes (including taxes that affect its out‐of‐state customers) to benefit (directly and indirectly) in‐state renewable energy undertakings. In any case, Arizona, like California and several other states undertaking this combination of mandates and subsidies, is clearly leveraging its public role in the electricity market (as purchaser, owner, operator, and regulator) to broadly and aggressively influence the environmental behaviour of many in‐state actors and market participants to create long‐term supply and demand for renewable energy and related businesses.
2.
Legal
Frameworks
in
the
European
Un
‐
ion
and
the
United
States
The following legal frameworks and cases describe ongoing developments in the Union and the U.S. that are related, on the one hand, to balancing environmental objectives against those of the free market, and, on the other hand, how this process has become increasingly defined with respect to a local environmental focus. In fact, the most important legal aspects of state procurement activities are also related to this same balancing process. And the economic sectors discussed in most of the following cases, such as recycling, waste disposal, and energy policy, remain illustrative,
43 See Arizona SB 1403 (2009).
if not squarely in the centre, of the main legal considerations for environmental procurement.
2.1 The European Union
As in the U.S. system, federal primary law protection of free markets and economic integration remains one of the main legal constraints on many state activities, including environmental goals. After setting forth these basic treaty protections, the cases applying them to the environmental area will be examined. These foundational cases not only demonstrate the important principles devel‐ oped by the European Court of Justice ( CJEU ) to balance economic freedoms against local environmental objectives, but they continue to relate directly to legal issues surrounding state‐ level use of environmental procurement policies.45
Starting with Article 26 TFEU of The Treaty of Lisbon, the internal market is established:
The Union shall adopt measures with the aim of establishing and ensuring the functioning of the internal market ... [which] shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured.46
With respect to state procurement activi‐ ties, which potentially involve the purchase of goods and services, but which also may affect
45 In fact, state environmental interests had little or no presence in the governing treaties for much of the
history of The European Communities, whereas
economic and internal market goals were always of primary treaty importance. See Edward, D (2008) at page 4 ( So it is not surprising that, by the time environmental protection became a matter of serious public concern, there was already a substantial body of case law limiting any action on the part of Member States that might hinder the free movement of goods ). 46 See Article 26 TFEU. And to understand the historical importance to the Union of economic integration and the economic free movement rights is to understand their role, not only in promoting the creation of wealth, but as the central part of an ambitious peace‐making enterprise. See Chalmers (2010) at Chapter 16.
the creation or re‐location of business enter‐ prises, most of the aforementioned free move‐ ment rights are applicable: Articles 34 and 35 TFEU pertain to goods; Article 49 TFEU applies to establishment; and Article 56 TFEU applies to services.47 Importantly, and as compared to
competition law, these provisions related to Union commercial practices are primarily concerned with state measures, and preventing state laws and actions from burdening free markets.
And while these economic freedoms operate legally in somewhat different ways, the basic protections are common to all of them. For example, the relevant provisions related to the free movement of goods read as follows: Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States. 48
However, these economic rights are not absolute. For example, Article 36 TFEU defines the strongest class of possible state restrictions to the free movement of goods based upon justifications of public morality, public policy, or public security. 49 While these categories
sound rather broad, the CJEU protects free market interests vigorously, and only the most serious state interests will qualify.
Environmental protection, by comparison, is not an Article 36 derogation, but is one of the many legitimate public policy exceptions known as mandatory requirements that may, in some cases, permit a restricting of economic free movement.50 And in considering the appli‐
cation of mandatory requirements, the Court
47 See Articles 34, 35, 49, and 56 TFEU. 48 See Articles 34 TFEU.
always applies proportionality, its principle balancing test, to ask if the public policy exception is proportionate to its claimed objectives when balanced against the costs of restricting treaty‐protected free movement doctrines.51
Two additional treaty provisions, pertain‐ ing to taxation and state aid, should also be mentioned briefly.52 Article 110 TFEU
specifically prohibits tax discrimination that directly or indirectly imposes any tax on the products of other states in excess of that imposed on domestic products.53 Taxation, as
has already been seen in the examples above, is often a supporting component of state environmental and procurement projects, but, moreover, comes in many forms. In addition, Article 107 TFEU, prohibits any aid in any form by means of state resources that favours certain undertakings or the production of certain goods. 54 In fact, state aid burdens out‐
of‐state undertakings in a different manner than discriminatory taxation, by giving assistance to in‐state undertakings that are competing with out‐of‐state (and un‐aided) businesses.55
51 See Article 5 TEU.
52 On the other hand, legal doctrines related to services of general economic interest ( SGEI ) will not be examined. See Article 106(2) TFEU. The provisions related to SGEI, or public services, note that while competition law still applies to undertakings entrusted by the state to undertake these services, they must still abide by competition law, but only so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. This area of law is certainly relevant to procurement, insofar as it applies to increasingly
common mixed public‐private buying and service
arrangements. But since the focus of this paper is primarily the law s relation to state activities, analyzing the legal status of these private enterprises under competition law will not be considered here.
53 See Article 110 TFEU. 54 See Article 107 TFEU.
55 But, the significance of both prohibitions is the simultaneous and closely‐related prevention of state
In fact, these principles of free market protection, as well as some of the specifically prohibited practices just mentioned, are the subject of many of the most important environmental and procurement cases in The Union. Starting, then, with Waste Oils, which was decided before environmental goals had a treaty basis, it was noted that environmental protection did appear in the preamble to the controlling oil recycling directive.56 However,
the CJEU found that the French law prohibiting the exportation of waste oil for recycling elsewhere (as opposed to within France under state‐created programs) violated treaty protec‐ tions of the free movement of goods.57 By way
of examining local environmental program‐ matic goals, cases like this one began defining when waste products would also be considered protected, commercial goods.58
By contrast, the CJEU in the ADBHU case applied proportionality in determining that some restrictions on economic free movement were justified by legitimate state environmental objectives.59 Here, French prior approval
requirements for exporting waste oils were justified by the need to ensure that the eventual disposal in some other Member State was
economic patronage of in‐state undertakings and
interference in the specific or general functioning of free markets.
56 Syndicat national des fabricants raffineurs d huile de
graissage and others v. Groupement d intérêt
économique Inter‐Huiles and others ( Waste Oils ), 172/82.
57 Id at ¶ 14 ( Clearly the environment is protected just as effectively when the oils are sold to an authorised
disposal or regenerating undertaking of another
Member State as when they are disposed of in the Member State of origin ).
58 At this point, then, wastes that were, in fact, going to
be transformed back into useful products were
protectable goods.
carried out in a way which avoids harm to the environment. 60
In Walloon Waste, the last of the waste cases, the environmental policy goals were almost entirely local when The Commission challenged a Belgian law prohibiting the importation of waste into the country for disposal based upon environmental protection justifications.61 The CJEU allowed the law to
stand, even after noting that waste is a potentially valuable good under Article 34 TFEU, and, therefore, protectable as against state measures restricting movement and import.62 The important step that distinguishes
this case from previous rulings on this subject is the Court s characterization that waste is matter of a special kind because it can cause environmental harm. On this basis, environmental protection can justify restricting the movement of wastes into and through member states.
But, what s more, the Walloon Waste Court upheld this result against the Commission s argument that Belgium was still making an untenable discriminatory assumption that hazardous waste produced out‐of‐state was somehow more hazardous or environmentally harmful than hazardous waste produced in‐ state. The Court concluded that because of these special characteristics of waste it must accordingly be disposed of as close as possible to the place where it is produced, in order to limit as far as possible the transport of waste. 63
In all of these ways, the ruling is quite favourable to local environmental interests and policy‐making.
60 Id at ¶ 11.
61 Commission of the European Communities v. Kingdom of Belgium ( Walloon Waste ), C‐2/90. 62 Id at ¶ 28 ( waste, whether recyclable or not, is to be regarded as goods the movement of which ... must in principle not be prevented ).
63 Id at ¶ 34.
Turning to the recycling cases, there seems to be a similar progression, both in terms of a re‐balancing in favour of environmental interests and in treating local policy concerns with increasing deference. Starting with the Danish Bottle Case, the Court agreed that environmental protection was an essential European Union objective, but it firmly limited its application when balanced against free economic movement rights.64
Compare this result to the more recent decision in Radlberger, which involved a German deposit‐and‐return requirement that similarly imposed costs and burdens on beverage makers who produced large proportions of non‐reusable containers.65 In
fact, in this case the burden was found to be discriminatory, as foreign suppliers tended to use more non‐reusable materials. Nevertheless, the CJEU allowed, in principle, that this type of program would be permissible given the importance of environmental objectives. In finding against the specific law at issue in this case, the Court s main requirement was that foreign producers be allowed a reasonable transitional period to adapt to the new program.
From the renewable energy area, the Court in Outokumpu Oy did not allow a Finnish tax scheme to stand that charged lower rates for locally produced electricity from renewable sources.66 Even though the tax was clearly
discriminatory, one explanation given was that the fungible nature of electricity being
64 See Commission v. Kingdom of Denmark (Danish Bottle Case), 302/86 (This rejection was based solely upon the program s purported burden to inter‐state commerce, for while the Court discussed the law s potential burden to foreign undertakings, there was no claim of discriminatory impact since the reduction in numbers of allowable containers applied equally to Danish undertakings).
65 See Radlberger Getrankegesellschaft mbH & Co v. Land Baden‐Wurttemberg, C‐309/02.
imported meant that it was difficult to know if it was produced by more or less polluting means, which justified some disproportional burden in favour of local clean energy initiatives. The CJEU accepted the that environmental policy goals were important enough to impose some economic restrictions, but seemed concerned in its rejection of Finland s arguments that foreign suppliers had not even been given an opportunity to demonstrate the manner in which their power was produced.67
All of the environmental cases discussed so far involve legal issues that are also related to state purchasing, but the Preussen Elektra ruling deals directly with state green procurement.68
Here, the CJEU upheld a German law requiring power suppliers to purchase electricity from in‐ state producers of renewable energy at above‐ market prices, the extra costs of which were to be shared among upstream and downstream energy market participants. The CJEU argued
forcefully and on a number of grounds that Union environmental objectives were now sufficient to support this kind of state environmental program against free economic movement interests, even considering the fact that the law was clearly discriminatory in mandating purchases from in‐state suppliers.69
In addition, though, the Preussen Elektra Court argued further that the German law did not involve state aid because there were a sizable number of private undertakings
67 Id at ¶ 31 (The Treaty therefore does not preclude the rate of an internal tax on electricity from varying according to the manner in which the electricity is
produced and the raw materials used for its
production, in so far as that differentiation is based, as is clear from the actual wording of the national court s questions, on environmental considerations ).
68 See Preussen Elektra AG & Schleswag AG, C‐379/98. 69 Id at ¶ 73‐77 (citing various primary law environ‐ mental obligations, Union pledges to combat climate change, and the protection of health for animals and plants).
involved in sharing the costs of these in‐state energy purchases. While this part of the ruling may (or may not) be persuasive with respect to avoiding treaty‐based state aid prohibitions, it ignores the other, independent form of discrimination that has been created. In short, using state resources to favour in‐state undertakings also burdens out‐of‐state businesses that are trying to compete in the same market on equal terms: the power suppliers in this case included private undertakings, but also those owned partially or wholly by the state; in fact, two of the eight German suppliers were majority state‐owned; and, as such, Germany itself was subsidizing a substantial part of its renewable energy mandates to buy locally.70
While the underlying justifications for Germany s renewable energy purchase mandates and its de facto subsidy program were not discussed at length in the decision, the rationale is nonetheless clear. Without the state measures, in‐state energy providers would not support relatively expensive in‐state renewable energy producers (and for short and long‐term environmental policy reasons, Germany wanted to support them); and, without the shared compensation scheme, too much of the increased cost burden would fall on one level of the energy supply and distribution market (and for economic reasons, Germany believed this might be disadvantageous or even disruptive of this crucial sector). But what also seems quite likely is that the German law has another longer‐term economic objective to use state subsidies to build a strong and profitable in‐ state renewable energy industry.
Therefore, what s interesting here is that the CJEU addressed the direct form of purchasing discrimination in its balancing analysis, but didn t seem overly concerned with
the indirect form resulting from state subsidies. This is worth keeping in mind, because recent U.S. decisions appear much more concerned about matching potentially discriminatory impacts to public funding and subsidy sources.71 And, further, the CJEU demonstrated
again that it has become willing to allow significant and even discriminatory inter‐state economic burdens in the promotion of locally focused, environmental program objectives.
But, finally, compare the seemingly expansive ruling of Preussen Elektra to recent statements made by the European Commission ( the Commission ). In guidance documents, the Commission stated that it would be discriminatory for a member state to apply criteria penalising contractors solely on the basis of the distance they travel to deliver the goods. 72
Important Directives, Block Exemptions, and the Post‐Lisbon Situation
While there are many Union directives and regulations applying to environmental protection, climate change, and green energy, most of these play supporting roles with respect to the legal issues surrounding state environmental procurement.73 There are two
directives, however, which are directly applicable: the first of these sets forth most of the Union s substantive and procedural requirements affecting state procurement ( The Procurement Directive )74; the second directive
71 See infra, West Lynn Creamery.
72 See European Commission Report (2004) at page 39. 73 That is, it s certainly persuasive when justifying state activities or purchasing against claims of interference with the free market if legitimate environmental mandatory requirements are also supported by explicit Union policy objectives. See, for example, Biofuels Directive, 2003/30/EC (which is not a binding law, but provides targets for conversions to biofuels); and see Directive on the Promotion of the Use of Energy from Renewable Sources, 2009/28/EC.
74 See Directive on the Coordination of Procurement Procedures, Directive 2004/18/EC.
provides more detail on similar subjects that applies to specific sectors, including water, energy, and transport ( The WETPS Procure‐ ment Directive ).75
One of the Procurement Directive s first instructions to member states is to ensure that their government purchasing does not distort free and competitive economic markets.76 In the
very next paragraph, the Directive states that The Lisbon Treaty (and with specific reference to Article 6 TEU) requires that environmental protection be integrated into all state procurement decisions.77
Beyond this, the Procurement Directive is clear that environmental characteristics are valid award criteria for state purchasing activities.78 More specifically, and while states
may always award their purchasing contracts based upon low price, they may, alternatively, use other mixed considerations of valuation that include environmental performance characteristics.79
And moving beyond the products, it may also be appropriate to award contracts to applicants having other types of related environmental characteristics, including environmental management systems, their use of approved eco‐labels, or established programs that reduce pollution and energy use in the manufacturing process.80 The Procurement
Directive encourages states to avoid awarding public contracts to parties who have been
75 See Directive on the Coordination of Procurement Procedures of Entities Operating in the Water, Energy, Transport and Postal Services, 2004/17/EC.
76 See Directive on the Coordination of Procurement Procedures, Directive 2004/18/EC at Preamble 4. And note: While preamble language does not usually have legal force, it is important to understanding and interpreting legal acts, and is, therefore, persuasive and often cited by the CJEU.
77 Id at Preamble 5. 78 Id at Article 3(b).
e
involved in criminal violations, including environmental crimes.81 Operationally, the
burden of compliance with the Procurement Directive falls upon the member states, although the Commission does offer assistance, including requirements that procurement notices be sent to the Commission before publication.82
The WETPS Procurement Directive con‐ tains the same introductory admonitions against market distortion and the same expec‐ tations regarding integrating environmental considerations.83 In fact, the WETPS Procure‐
ment Directive s treatment of environmental procurement essentially parallels the provisions found in the Procurement Directive, making them directly applicable to the law s named sectors.84
Furthermore, the CJEU has already decided several important cases related to state‐level environmental procurement that contributed to and were later codified as part of the aforementioned directives. And, moreover, these cases are quite favourable in their support of the state s ability to use buying power in an environmentally progressive manner. For ex‐ ample, in Concordia Bus the city of Helsinki opened a public procurement process to replace its municipal bus fleet.85 Among the groups
that tendered bids, wer several out‐of‐state manufacturing undertakings (including Con‐ cordia ), and a Finnish public corporation ( HKL ) that ended up winning the contract.
This result was challenged by the foreign undertakings, who noted that the stringent
81 Id at Preamble at 43.
82 Id at Articles 35 and 36.
83 See Directive on the Coordination of Procurement Procedures of Entities Operating in the Water, Energy, Transport and Postal Services, 2004/17/EC at Preamble 11 and 12.
84 Id at Preamble 42, 53, and 54 and at Articles 3(b), 6, 38, and 52(3).
85 See Concordia Bus Finland v. Helsingin kaupunki and HKL‐Bussiliikenne, C‐513/99.
environmental contract requirements for biofuel vehicles, as well as a relative scarcity in Finland of privately available biogas refuelling infrastructure, essentially guaranteed that the Finnish public company would prevail.86 First,
the CJEU decided that the economically most advantageous tender may include considera‐ tions of ecological and environmental protec‐ tion.87 And, next, the Court concluded that
while non‐discrimination lies at the very heart of the public procurement directives this did not preclude Helsinki from including strict environmental protection criteria even though the contracting entity s own transport under‐ taking was one of the few undertakings able to offer a bus fleet satisfying those criteria. 88
The next case is EVN, which involved an Austrian public procurement offering that sought suppliers of electricity.89 The
procurement competition criteria weighted heavily the suppliers’ ability to produce energy produced from renewable sources. Citing the Preussen Elektra decision, the Court noted it has already held that the use of renewable energy sources for producing electricity is useful for protecting the environment. 90 On this basis,
the CJEU ruled tha stringent environmental procurement requirements are not incompati‐ ble with the Community legislation on public procurement.
t
91
86 Id at ¶ 71 ( At the date of the invitation to tender, there was only one service station in the whole of Finland supplying natural gas. Its capacity enabled it to supply about 15 gas‐powered buses. Shortly before the invitation to tender, HKL placed an order for 11 new gas‐powered buses, which meant that the station s capacity was fully used and it was not possible to supply fuel to other vehicles. Moreover, the service station was only a provisional one ).
87 Id at ¶ 69. 88 Id at ¶ 81 and 86.
89 See EVN AG and Wienstrom GmbH v. Republic of Austria, C‐448/01.
And the Court defended these rulings even in cases where petitioners attempted to show that the state s program may not ultimately be successful at achieving its environmental objectives.92 In fact, the Court s only real
objection to Austria s procurement procedure was its inability to verify whether or not the electricity produced by the contracting parties actually came from renewable sources.93
Next, with respect to the state aid prohibi‐ tions outlined earlier, there have been impor‐ tant block exemptions ( GBER ) developed in recent years that apply directly to issues of green procurement, environmental protection, and renewable energy.94 In essence, the GBER
exempts listed classes of activities that might normally be considered to violate Union commercial practices or competition law, and does so in the interest of some overriding economic or public policy objective.95
As with the Procurement Directive, the burden of incorrect interpretation of the GBER falls upon the member states.96 Further,
compliance with the GBER obviates the need for member states to provide notice to the Commission in advance of planned state aid payments.97 But, the Commission can also
determine that the GBER does not apply or should be withdrawn if it finds a member state has over‐reached or abused the provisions.98
However, the Commission also publishes guidance documents that, while non‐binding, are useful for providing member states more
92 Id at ¶ 53.
93 Id at ¶ 51 and 52.
94 See General Block Exemption Regulation for State Aid, Reg No 800/2008.
95 Id at Article 3(1).
96 Id at Preamble 5 ( This Regulation should exempt any aid that fulfils all the relevant conditions of this Regulation ).
97 Id at Preamble 1. 98 Id at Preamble 6.
detailed examples and assistance for analyzing common situations.99
The GBER specifically exempts many kinds of environmental investment aid for the promotion of energy from renewable energy sources and aid for environmental studies. 100
These categories of exemptions may also be relevant to state green procurement policies, as they may cover a variety of state purchasing arrangements that give private parties and undertakings favourable treatment or terms. However, the GBER goes further in its section on aid with the acquisition of new transport vehicles enabling undertakings active in the transport sector to go beyond Community standards for environmental protection. 101
This Article relates directly to state environmental procurement activities, on their own behalf and on behalf of private und
e e h
favouring
dom r 1
ertakings.
The GBER also provides flexibility as to how state aid can be administered, covering, for instance, the use of tax exemptions and incentives in addition to direct investment.102 In
fact, one section of the GBER covers aid in the form of reductions in environmental taxes 103
Very important, howev r, is to r member t at the GBER does not exempt subsidies or purchasing activities that discriminate against foreign undertakings: This Regulation should not apply to export aid or aid
estic ove imported products. 04
Finally, and moving on to another important development under Union law, The Lisbon Treaty s clear and expanded emphasis on environmental protection might also affect the ways the Court undertakes its balancing of
99 See, for example, Commission Guidelines on State Aid for Environmental Protection.
100 Supra at Articles 23 and 24. 101 Id at Preamble 46 and Article 19. 102 Id at Preamble 19.
at impose some bur
A r o
of the CFR s environ‐ men
t
the principle of sustainable dev
a
environmental policy goals against the free economic movement doctrines. This, of course, may also affect the ability of states to undertake green procurement projects th
dens on economic markets.
It s with Article 6 of the TEU that a genuine paradigm shift occurs within Union law.105
While the CJEU has previously made use of and even developed fundamental right law doctrines, for the first time they are set forth as foundational principles in the treaty, legally equivalent in purpose and effect to all other Union laws, including those of free movement. For example, rticle 6 TEU s ecogniti n of the Charter of Fundamental Rights ( CFR ) includes recognition
tal protections:
A high level of environmental protection and the improvement of the quality of the environment must be integrated into he policies of the Union and ensured in accordance with
elopment.106
In fact, The Treaty of Lisbon also expands upon the concept of sustainability found in previous treaties by recognizing that what s required are balanced social, economic, nd environmental dimensions.107 Although the
Schmidberger case was decided before the Treaty
105 Article 6(1), (2), and (3) TEU ( 1. The Union recognises the rights, freedoms, and principles set out in the Charter of Fundamental Rights of the European Union ... which shall have the same legal value as the Treaties ... 2. The Union shall accede to the European Convention for the Protection of Human Rights and Fundamental Freedoms ... 3. Fundamental rights ... as they result from the constitutional traditions common to the Member States, shall constitute general principles of the Union s law ).
106 See Charter of Fundamental Rights, Article 37. 107 See Article 3.3 TEU (The Union “shall work for the sustainable development of Europe based on balanced
economic growth and price stability, a highly
competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment”)
of Lisbon was ratified, it s a good example of CJEU jurisprudence that reflects something similar to these new balancing elements. The case inv lved a lawfully registered environ‐ mental de ons ration o the Brenner motorway, the effect of which was to completely close tha
o
m t n
t motorway to traffic for alm
e
striction of ... the free movement of g
to consider that the legitimate aim of that
ost 30 hours. 108
The Schmidberger petitioner claimed its trucking business suffered damages amounting to a restriction of the free movement of goods because Austrian authorities failed to prevent the demonstration and the resulting traffic obstruction.109 For its part, the CJEU noted that
the defendant s actions and inactions could be considered a measure of equivalent effect to a quantitative restriction,110 but noted that the
protection of the environment and public health, specially in that region, may, under certain conditions, constitute a legitimate objective in the public interest capable of justifying a re
oods. 111
In fact, the Court then re‐stated these ideas even more forcefully: the Austrian authorities were inspired by considerations linked to respect of the fundamental rights of the demonstrators which form an integral part of the general principles of law from which the Court draws inspiration from the constitutional traditions common to the Member States. 112
Applying a proportionality analysis to these facts and principles, the CJEU then ruled that the national authorities were reasonably entitled, having regard to the wide discretion which must be accorded to them in the matter,
108 Eugen Schmidberger, Internationale Transporte und Planzüge v. Republik Österreich, Case C‐112/00, ¶ 2. 109 Id at ¶ 16.
